Both top-line and bottom-line in 1H16 missed ourforecasts, by 8.3% and 43.7% respectively
Ju Teng International Holdings announced 1H16 results: revenuewas HK$3,696, down 12.3% YoY; net profit was HK$202mn,down 43.1% YoY. Due to a decline in low-end notebook casingshipments, an increase in development cost in 1H for 2H16eproducts and an ASP drop, Ju Teng’s 1H16 revenue was8.3%/11.1% below CICCe/consensus estimates. In addition, asthere was no refreshed model for the high-margin Surface in1H16, Ju Teng’s 1H16 gross margin also fell 4.2ppt YoY to14.9%, below CICCe/consensus of 20.1%/20.5%. As a result, JuTeng’s 1H16 net income fell 43.1% YoY to HK$202mn, missingCICCe/consensus estimates by 43.7%/41.8%, respectively.
Trends to watch
2H16 still challenging despite a seasonal recovery. JuTeng added 1,000 CNC machines (6,000+ units in total) in early2Q16 in preparation for new metal casing orders. As new Surfaceorders won’t start kicking in until November, we expect the CNCutilization rate is unlikely to pick up until then, the overallutilization rate would remain low in 2H and the gross marginshould still face pressure.
Earnings forecast
We lower our earnings forecast by 36.9% from HK$0.75to HK$0.47 per share for 2016, and by 21% fromHK$0.88 to HK$0.69 per share for 2017. We lower 2016eEPS mainly due to a decline in low-end notebook casingshipments and an increase in development cost in 1H16 for2H16e products.
Valuation and recommendation
The stock is trading at 5.3x /3.6x 2016e/17e P/E. We maintainour HOLD rating, but lower our target price by 26.62% toHK$2.78, implying 11.2% upside room from the current price.The new TP is based on 4.03x 2017e P/E.
Risks
Lower shipment of Surface Pro; slower NB market growth.